Commodity index funds will have to buy, rather than sell, crude oil contracts during their annual rebalancing in early January, due to tumbling prices, Societe Generale said on Thursday. The funds will need to buy $293 million worth of West Texas Intermediate (WTI) crude, as prices have fallen 17.5 percent since SocGen forecast expectations for the index fund reweightings in early November, analysts for the French banking group said in a market note on Thursday.
A month ago, SocGen said the funds would have to sell $670 million in crude. Brent prices have fallen 18.8 percent during that time period, so the funds will have to buy more of the commodity than previously expected. They are set to increase their purchasing by $535 million, the bank said.
Energy markets have led the recent sell-off that has hit most commodities, with crude prices hitting a five-year low below $64 a barrel this week. That reweighting of WTI and Brent could cause a widening in the spread between the two markets, though the volumes will not be particularly significant, SocGen said.
In agricultural commodities, the funds will have to sell $254 million worth of wheat, rather than buy $146 million in wheat contracts, in the rebalancing. They will have to sell $98 million in Kansas wheat contracts, rather than buy $5 million worth of the commodity, the bank said. They will have to sell more live cattle and coffee. In metals, nickel selling will increase by $208 million.
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